Asset reconstruction company

Asset Reconstruction company means acquisition by any securitization company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realization of such financial assistance. Asset Reconstruction company is a company registered under section 3 of the Securitization & Reconstruction of financial assets & Enforcement of security interest ( SARFAESI ) Act 2002.
It is regulated by RBI as a Non – banking Financial company
RBI has exempted ARCs from the compliances under section 45- 1A ( Requirement of registration & net owned fund ) , Section 45 – 1B ( Maintenance of liquid assets ) , Section 45 – 1C ( Creation of reserve fund ) of the Reserve Bank Act, 1934 .
ARC Functions like an AMC within the guidelines issued by RBI.
The ARC transfers the acquired asset to one or more trusts at the price at which the financial assets were acquired from the originator
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1. ASSET RECONSTRUCTION
COMPANY –2017
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RBI-ARC License

2. ARC -MEANING
•AssetReconstructioncompanymeansacquisitionbyany
securitizationcompanyorreconstructioncompanyofanyrightor
interestofanybankorfinancialinstitutioninanyfinancialassistance
forthepurposeofrealizationofsuchfinancialassistance.
•AssetReconstructioncompanyisacompanyregisteredundersection
3oftheSecuritization&Reconstructionoffinancialassets&
Enforcementofsecurityinterest(SARFAESI)Act2002.
•ItisregulatedbyRBIasaNon–bankingFinancialcompany

3. CONT……..
•RBIhasexemptedARCsfromthecompliancesundersection45-1A(
Requirementofregistration&netownedfund),Section45–1B(
Maintenanceofliquidassets),Section45–1C(Creationofreserve
fund)oftheReserveBankAct,1934.
•ARCFunctionslikeanAMCwithintheguidelinesissuedbyRBI.
•TheARCtransferstheacquiredassettooneormoretrustsatthe
priceatwhichthefinancialassetswereacquiredfromtheoriginator.

4. CONT……
•ARChasbeensetuptoprovideafocusedapproachtoNon–
PerformingLoansresolutionissueby–
1.IsolatingNon–PerformingLoansfromthefinancialsystem.
2.Facilitatingdevelopmentofmarketfordistressedassets.
NowinIndia,AssetReconstructioncompanyareinbothPublicas
wellasPrivateSector

5. PRIMARY GOAL OF ARC
•AnAssetReconstructionCompany’sprimarygoalistomanage&to
makeprofitablethoseassetswhichhavebeenunderperformingor
becomeformallyclassifiedasNon-PerformingAssetbelongingto
companieswhohavebeenunabletogeneratesufficienttimely
revenuetoservicetheiroutstandingobligations.
•AnARChavetheresponsibilityundertheSARFESIActtofunctionas
intermediariesbetweenthepromoter&thetrust.
•AnARCarecreatedtomanage&recoverNPAacquiredfromthe
bankingsystem.

6. FUNCTIONS OF ARC
ARC perform the following functions :
•Acquisition of Financial assets
•Rescheduling of Debts.
•Change or takeover of management
•Enforcement of security interest
•Settlement of dues payable by the borrower.
•ARCs are allowed to raise funds from QIB in order to raise cash to
make an upfront payment required to buy discounted debts.

7. BENEFITS OF ARC
•The Major objective of ARC is to acquire & rapidly liquidate Non-
Performing Assets.
•Clean books of Accounts by reducing NPA
•It deals with Larger portfolio , it can mix up good assets with bad ones
& make a sale.
•ARC improve the recovery & reduce NPA.
•Acquisition of interest.

8. HOWDOESARCACTUALLYWORKS?
•ARC functions more or less like a mutual fund . It transfers the
acquired assets to one or more trusts at the price at which the
financial assets were acquired from the originator.
•Then, the trusts issue security receipts to QIB . The trusteeship of
such trusts shall vest with the ARC . ARC will get only management
fee from the trusts.
•ARC will have the obligation to help companies in times of stress to
review the activities of Non –Performing assets.

9. CONT……
•NPA is transferred to ARC along with any security which is pledged while
taking loan.
•ARC will issue security receipts for fixed interest rate & will raise money.
Security Receipt –It means a receipt or other security by a securitization
or reconstruction company to any QIB , pursuant to the scheme ,
evidencing the purchase or acquisition by the holder of an undivided right
, interest in the financial asset involved in securitization.
The SecuritisationCompany or Reconstruction Company shall invest in
the security receipts issued by the trust set up for the purpose of
securitisation, an amount not less than 5% under each scheme :

10. FIRST ARC IN INDIA
ARCIL –Asset Reconstruction company India ( Limited )
Set up in 2002, ARCIL India First & among the leading asset
reconstruction companies in the country.
ARCIL resolved over Rs. 780 billion worth of Non-Performing Assets
acquired from banks & Financial Institutions.
ARCIL is sponsored by prominent banks & F.I. such as SBI , IDBI, PNB .
ARCIL is also an associate member of Indian Bankers Association.

11. OTHER ARC IN INDIA
•ACRE –Asset care & Reconstruction Enterprise Limited
•ASREC ( India ) Limited
•Reliance Asset Reconstruction Company Limited
•PHOENIX ARC Private Limited
•INVENT Assets Securitisation& Reconstruction Private Limited

12. FOREIGN INVESTMENT IN ARCs
•GovernmentdecidedtopermitForeignDirectInvestment(FDI)in
equity.
•ForeignInvestmentPromotionBoard(FIPB)toconsiderapplications
frompersons/entitieseligibletoinvestinIndiainequitycapital.
•FDIwillbepermitted,ButinvestmentsbyFIIwillnotbepermitted.

13. MINIMUM REQUIREMENT
EveryARCseekingtheBank'sregistrationunderSection3oftheAct,
shallhaveaminimumOwnedFundofRs.2crore.
(ProvidedthateveryARCsseekingtheBank'sregistrationunder
Section3,orcarryingonbusinessoncommencementof
theSecuritisationCompaniesandReconstructionCompanies(Reserve
Bank)(Amendment)GuidelinesandDirections,2004,shallhavea
minimumOwnedFundnotlessthanfifteenpercentofthetotal
financialassetsacquiredortobeacquiredbytheSecuritisation
CompanyorReconstructionCompany(irrespectiveofwhetherthe
assetsaretransferredtoatrustsetupforthepurposeofSecuritisation
orheldinitsownbooks)onanaggregatebasis,orRs.100crore,
whicheverisless;)

14. ELIGIBILITY CRITERIA FOR REGISTRATION
•EveryARChasnotincurredlossesinanyofthe3precedingfinancial
year;
•Anyofthedirectorshasnotbeenconvictedofanyoffenceinvolving
moralturpitude;
•Theboardofdirectorsofsuchsecuritisationcompanydoesnot
consistofmorethanhalfofitstotalnumberofdirectorswhoare
eithernomineesofanysponsororassociatedinanymannerwiththe
sponsororanyofitssubsidiaries;

15. DOCUMENTS / INFORMATION CHECKLIST
•Certified Copy of up-to-date Memorandum & Articles of Association
of the company
•Certified copy of Certificate of Incorporation.
•Board resolution to the effect that the company has not accepted any
deposit.
•Board resolution to the effect that none of the directors are
disqualified to be appointed as directors as per the provisions of the
companies Act, 2013
•All Information about the sponsor

16. CONT……
•All Information about the management
•A Certified copy of Auditor Certificate
•Last 3 years audited balance sheet along with directors & auditors
report.
•Statement of owned funds.
•Information about related parties.

17. APPLICATION TO RBI
•EveryARCshallmakeanapplicationforregistrationtotheRBI.Theforms&
mannerofapplicationaretoprescribebytheRBI.
•ASecuritisationCompanyorReconstructionCompanyshallcommence
businesswithinsixmonthsfromthedateofgrantofCertificateof
RegistrationbytheBank;
•ASecuritisationCompanyorReconstructionCompany,whichhasobtained
acertificateofregistrationissuedbytheBankunderSection3oftheAct,
canundertakebothsecuritisationandassetreconstructionactivities;

18. CONT……..
•TheRBIshallconductinspectionofbooksofaccountsofthecompany
forthepurposeofconsideringtheapplicationforregistration.
•EveryARCseekingtheBank’sregistrationunderSection3oftheact,
shallhaveaminimumownedfundofRs.2crore
•ARCshallcommencetheirbusinessafterobtainingtheCertificateof
RegistrationunderSARFAESIAct,2002

19. DISCLOSURES IN THE BALANCE SHEET
EverySecuritisationCompanyorReconstructionCompany,preparethe
followingschedules&Annexthemtoitsbalancesheet-
•Thenamesandaddressesofthebanks/financialinstitutionsfrom
whomfinancialassetswereacquiredandthevalueatwhichsuch
assetswereacquiredfromeachsuchbank/financialinstitutions;
•Value of financial assets acquired during the financial year either on
its own books or in the books of the trust;
•Value of financial assets realized during the financial year;

20. CONT……..
•Value of Security Receipts pending for redemption as at the end of
the financial year;
•Details of related parties as per Accounting Standard and guidance
notes issued by the Institute of Chartered Accountants of India and
the amounts due to and from them;
The accounting policies adopted in preparation and presentation of the
financial statements shall be in conformity with the applicable
prudential norms prescribed by the Bank.

21. INTERNAL AUDIT
EveryARCshallputinplaceaneffectiveInternalControlSystem
providingforperiodicalchecksandreviewoftheassetacquisition
proceduresandassetreconstructionmeasuresfollowedbythe
companyandmattersrelatedthereto.

22. SUBMISSION OF AUDITED BALANCE SHEET
AlltheARCwereadvisedtofurnishacopyofauditedbalancesheet
alongwiththeDirectors'Report/Auditors'Reporteveryyearwithin
onemonthfromthedateofAnnualGeneralBodyMeeting,inwhich
theauditedaccountsareadopted,startingwiththebalancesheetas
onMarch31

23. QUARTERLY STATEMENT TO BE SUBMITTED BY ARCs
REGISTERED WITH RBI
QuarterlyStatementonownedFunds,assetsacquired,securitized&
assetsrealizedduringtheyear,valueoffinancialassetsunresolvedas
attheendoftheyear,valueofsecurityreceiptspendingfor
redemptionetc.aretobesubmittedbyARCsregisteredwithRBIwithin
15daysofcloseofthequartertowhichitpertains

24. PERMISSIBLE BUSINESS
•ANARCshallcommence/undertakeonlythesecuritisationandasset
reconstructionactivitiesandthefunctionsprovidedforinSection10
oftheAct.
•ASecuritisationCompanyorReconstructionCompanyshallnotraise
moniesbywayofdeposit.

25. APPROVAL OF RBI FOR CHANGE IN
MANAGEMENT
EveryARCshallobtainpriorapprovalofthereservebankforany
substantialchangeinitsmanagementorchangeoflocationofits
registeredofficeorchangeinitsname.
ThedecisionoftheReserveBankwhetherthechangeinmanagement
ofaARCisasubstantialchangeinitsmanagementornot,shallbe
final.

26. CANCELLATION OF CERTIFICATE OF
REGISTRATION
•The order of cancellation should specify clearly the grounds for
cancellation & normally the ARC/ SC should given a hearing before
cancellation.
•However , the aggrieved ARC/ SC may appeal to the Central
Government against such cancellation or rejection of registration
within 60 days of the date of order of the RBI.
•In case of rejecting an appeal such company shall given a reasonable
opportunity of being heard.

27. ThankYou
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